Friday, September 07, 2007

U.S. Food Aid Practices: Help or Hindrance?

A recent article in the New York Times and a subsequent editorial suggest that U.S. food aid policies are good for American farmers and charitable nongovernmental organizations, but bad for the people in low-income countries the charitable groups aim to assist. How can this be the case?

For simplicity, let's assume that U.S. agricultural price subsidies take the form of price supports. The U.S. government effectively sets a price floor for certain agricultural commodities, such as crude soybean oil. At the guaranteed price, U.S. agribusinesses produce more soybean oil than consumers wish to purchase. The U.S. government purchases the excess supply and donates it to charitable organizations operating in low-income countries like Kenya. The charitable organizations then sell the surplus crude soybean oil in Kenyan markets in order to finance anti-poverty programs aimed at Kenyans.

The charitable organizations represent additional sellers in the Kenyan market for soybean oil. The supply of soybean oil in the Kenyan market rises, leading to a reduction in soybean oil prices. The lower price of soybean oil can impact local farmers in a couple of different ways. If a local farmer produces soybeans, the decrease in price obviously reduces her profit margin and directly lowers her income. However, the impact need not be so direct. A local farmer producing a substitute for soybean oil, such as sunflower seed oil, will see the demand for his product decline as well due to the decrease in soybean oil prices.

The result is the same—lower income for Kenyan farmers producing products that somehow compete with the subsidized commodities that the charitable groups sell to raise funds. Keep in mind that the percentage of the Kenyan population employed in agriculture is much higher than in the United States.

Discussion Questions

1. At worst, food aid programs like those described in the article lead to higher food product prices in the U.S. and lower incomes for people employed in the agricultural sectors of low-income countries. Considering how the costs and benefits of the programs accrue to different parties, why do you think such programs have met with little to no political resistance in the U.S.?

2. In what way does the current system of financing aid undermine the efforts of charitable organizations that teach farmers in low-income countries to use more productive agricultural methods?

3. CARE's decision to quit the business of selling surplus U.S. commodities to raise funds is a source of controversy among charitable operators in less-developed countries. Charities that continue to endorse the practice argue that they bring food price stability to low-income countries without compromising the ability of local farmers to earn income. Even if we assume this argument is correct, what can you say about the efficiency of the current system compared to a system where the U.S. government forgoes farm subsidies and passes the cash savings directly on to the charitable organizations that currently sell subsidized U.S. farm products abroad?

4. CARE has decided to stop accepting donations of food from the U.S. government altogether. But what if they just stopped selling it, and instead gave the food away for free? What would the effects of that policy be?

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